Tag Archives: Andrew Ledbetter

Yesterday, the SEC issued an enforcement order regarding Munchee’s token offering and SEC Chairman Jay Clayton released a general public statement on cryptocurrencies and ICOs. For those who previously read our post about the SEC’s report in the DAO, much of this might not be a surprise – although the SEC staff did answer the call of discussing so-called “utility tokens.”

The SEC action against Munchee is notable to us because Munchee had at least some argument that its tokens had utility.…

One of the more interesting phenomena in early-stage investing is the recent emergence of initial coin offerings (“ICOs”), token generation events (“TGEs”), or similar distributed ledger or blockchain-enabled means for raising capital. Much has been written, including by many skilled lawyers in the technology sector, about whether the tokens issued in these structures involve “securities” – and, frankly, some of it is unhelpful. …

The SEC has made official what we blogged about yesterday: Late yesterday it removed from its agenda for today’s meeting the consideration of general solicitation in Rule 506 and Rule 144A offerings. The SEC also released a separate meeting notice for August 29, 2012, which states it will consider whether to propose rules to eliminate the prohibition against general solicitation and general advertising in securities offerings conducted pursuant to Rule 506 and Rule 144A.…

Earlier this month, the SEC announced that at its meeting tomorrow it would be considering rules to eliminate the prohibition against general solicitation and general advertising in securities offerings conducted pursuant to Rule 506 of Regulation D under the Securities Act and Rule 144A under the Securities Act. However, in response to a flurry of comments, the SEC has clarified it will not be adopting interim final rules at the meeting tomorrow and, instead, would follow the usual rulemaking process of proposing revisions to the rules, receiving public comment on the proposals, considering those comments, and then adopting final rules. This rulemaking process generally takes several month to complete.

As a quick follow up on this topic from a few months ago (prior post can be read here), the SEC has approved alternatives to Nasdaq’s historical $4 minimum bid price listing standard. Under the new alternative listing standards, a security may qualify for listing on the Nasdaq Capital Market if:

$3/share price — for at least five consecutive business days prior to approval, the security has a minimum closing price of at least $3 per share and the issuer has either:

Equity Standard: (A) stockholders’ equity of at least $5M; (B) market value of publicly held shares of at least $15M; and (C) a two year operating history; or

Net Income Standard: (A) net income from continuing operations of $750,000 in the most recently completed fiscal year or in two of the three most recently completed fiscal years; (B) stockholders’ equity of at least $4M; and (C) market value of publicly held shares of at least $5 million; or

$2/share price — for at least five consecutive business days prior to approval, the security has a minimum closing price of at least $2 per share and the issuer has (A) market value of listed securities of at least $50M; (B) stockholders’ equity of at least $4M; and (C) market value of publicly held shares of at least $15M.…

The Facebook IPO is a pretty big deal generally. Whether Facebook would go public stirred media frenzy and Congressional testimony in the past year. Facebook’s initial registration statement indicated it would be the largest tech company IPO ever (the fee table on the original filing showed a $5 billion offering – the filing fee alone was $573k). And the company’s social importance is undeniable.…

In addition to legislative initiatives we’ve previously discussed, we continue to see efforts to relax the general solicitation prohibition in private offerings. For example, the SEC’s Advisory Committee on Small and Emerging Companies recently made a formal recommendation that the SEC take immediate action to permit general solicitation and advertising in private offerings under Rule 506 where the securities are only sold to accredited investors. In addition, the Managed Funds Association, an organization of investment professionals in hedge funds, funds of funds, and managed futures funds, has used the somewhat uncommon process of submitting a petition for rulemaking to the SEC, asking the SEC to eliminate the ban on general solicitation and advertising for offerings or sales of securities by “private funds.”…

As expected, the SEC has adopted final rules regarding the exclusion of a person’s primary residence, and related debt securing the residence, from the “net worth” standard for accredited investors. The final rules are substantially similar to those the SEC previously proposed, which we summarized in this earlier post.…

The SEC has announced that, “beginning January 1, 2012, the staff will release filing review correspondence no earlier than 20 business days following the completion of a filing review.” This shortens the SEC’s historical (well, since 2005) practice of releasing such correspondence “no earlier than 45 [calendar] days after the review of the disclosure filing is complete.” This may be useful to note for a company that deals with SEC review (either registration or periodic/current reports). …

Amid the recent flurry of House bills intended to facilitate capital formation, which we’ve discussed here and here, is the Access to Capital for Job Creators Act, H.R. 2940. H.R. 2940 would amend Section 4(2) of the Securities Act of 1933, as amended, to exempt from SEC securities registration:

transactions by an issuer not involving any public offering, whether or not such transactions involve general solicitation or general advertising.

Like other capital formation bills we’ve discussed, the House of Representatives has overwhelmingly approved (by a vote of 407-17) the “Entrepreneur Access to Capital Act,” H.R. 2930. Subject to certain limitations, H.R. 2930 would allow businesses to raise money selling unregistered securities using “crowdfunding.”

Crowdfunding generally involves raising funds from large numbers of people typically in small amounts, often using social networks. Crowdfunding has been used successfully for charitable purposes, where participants donate funds, but the public nature of most crowdfunding solicitations limits the ability of businesses to raise investment funds using crowdfunding. …

The House of Representatives overwhelmingly passed two bills designed to improve capital formation, one addressing the 500-shareholder threshold for SEC registration and one addressing offerings under Regulation A.

500-Shareholder SEC Registration Threshold

Sections 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) generally requires companies with at least $10 million dollars in total assets and 500 shareholders to file reports with the SEC. While the $10 million asset threshold has increased from $1 million over the years, the 500 shareholder threshold has not moved. House of Representative bill H.R.…

For a variety of reasons, many emerging companies are not in a position to easily identify venture capital funds, banks, or angel investors from whom to raise money or to identify a potential acquirer for their business. Publicly soliciting investors in a registered offering might involve prohibitive costs and an uncertain outcome. The entrepreneur may not have adequate personal wealth to fund the company, not be fortunate enough to have rich relatives or friends, or not be looped in to the right circles to meet financially sophisticated potential investors. Such small businesses sometimes turn to “finders” to help them locate potential sources of financing or acquirers.…

The SEC has issued a new fee rate advisory. The fee rates applicable under Section 6(b) of the Securities Act and Sections 13(e) and 14(g) of the Exchange Act shall be $114.60 per million effective on October 1, 2011. Keep this in mind for any upcoming registration statements or going private deals, M&A deals, tender offers, or other proxy statements requiring a fee.…

As expected per the Dodd-Frank Act, the SEC yesterday proposed to add “bad actor” exclusions to Regulation D Rule 506. Similar to Regulation D Rule 505, Regulation A, Regulation E and state limited offering exemptions, the amendment would disqualify offerings from the use of Rule 506 if the issuer or certain persons involved in the offering have, during the relevant look-back period, faced criminal, civil or administrative orders involving a variety of securities or other financial services industry matters. …

New SEC rules regarding political contributions by certain investment advisers – dubbed the “Pay to Play” rules – become operative on March 14th. These rules generally prohibit registered and certain unregistered advisers from engaging various political contribution practices with a quid-pro-quo element.…

The SEC yesterday proposed rules on the “accredited investor” net worth standard, to implement Section 413(a) of the Dodd-Frank Act. Not much “new” here, but the proposed definition is:

Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of purchase, exceeds $1,000,000, excluding the value of the primary residence of such natural person, calculated by subtracting from the estimated fair market value of the property the amount of debt secured by the property, up to the estimated fair market value of the property.

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The Venture Alley is a blog about business and legal issues important to entrepreneurs, startups, venture capitalists and angel investors. The Venture Alley is edited by Trent Dykes and Andrew Ledbetter, corporate and securities lawyers at DLA Piper.